Brazil Puts Off Trade Retaliation in Cotton Dispute

Friday, February 21, 2014

Sandler, Travis & Rosenberg Trade Report

The threat of massive trade sanctions against U.S. exports to Brazil eased a bit Feb. 19 with Brasilia’s announcement that it will first ask the World Trade Organization to determine if a new U.S. farm bill adequately reforms cotton subsidy rules. The announcement makes clear that Brazil does not believe this to be the case, noting that “some specialists believe the new farm bill may be even more harmful to Brazilian interests than the former one.” But with little to no chance of any further statutory amendments in the U.S., the request for a WTO review appears to be an effort to give the two sides more time to work out an interim arrangement.

Such an arrangement could involve a resumption of the $12.25 million payments the U.S. had been making to Brazilian cotton producers each month, which were halted last October amid a federal budget impasse. Those payments were part of a deal under which Brazil delayed the imposition of WTO-authorized punitive measures while the U.S. Congress worked to reform cotton subsidy rules in line with a WTO decision against them. Brazil has protested the cessation of these payments, but foreign minister Luiz Alberto Figueiredo told a meeting of the Foreign Trade Chamber (Camex) that Brazil has no immediate plans to retaliate because of it. “The issue of commercial retaliation will always be on the table,” Figueiredo said, but Brazil is “interested, first and foremost, in solving the issue in an optimal manner to our national interests.”

In the meantime, a Camex workgroup is expected to issue in March a determination on the scope of any retaliatory sanctions that may ultimately be imposed, which could include higher tariffs on imports of U.S. goods and/or a suspension of intellectual property rights for U.S. movies, music, drugs and/or other goods.